Tax Settlement: State of Michigan Offer in Compromise
As of January 1, 2015, Michigan taxpayers are able to negotiate Michigan taxes for less. This is an exciting new program that was sorely needed in Michigan. We will continue to provide more details on how the Michigan Offer in Compromise program will be administered as the new program is formalized.
You Can Negotiate Michigan Taxes in Three Different Ways
The new Michigan Offer in Compromise Program will be modeled after the IRS Offer in Compromise Program. The new law provides three ways for settling Michigan taxes for less.
- Doubt as to Collectability. This means you are unable to fully pay the back taxes.
- Doubt as to Liability. This means you believe the state taxes are incorrect and you can prove it with sufficient evidence.
- The IRS approved an Offer in Compromise. The third way for negotiating your taxes is the most interesting. The State of Michigan will accept a settlement if the IRS has already agreed to settle your taxes for less.
Example: You owe $75,000 of IRS taxes and $10,000 of Michigan taxes. First, you negotiate your IRS taxes for less. The IRS accepts a tax settlement of $5,000, which is a reduction of 93%. According to the law the state may accept 93% less for your state taxes, which would come out to be $933. Overall, you would pay $5,000 to settle your IRS taxes and $933 to settle your state taxes. This is a huge reduction of taxes, penalties, and interest.
Michigan Offer in Compromise is Good for Taxpayers
Michigan will join over 40 other states that provide an Offer in Compromise program to its taxpayers. The bill HB 4003 was placed into law on July 16, 2014. Michigan had previously offered “amnesty” programs, which waived penalties and interest, but still required taxpayers to pay the full amount of tax owed. An Offer in Compromise program is different. Taxpayers who are unable to pay their back taxes or who legitimately do not owe the taxes will now be able to negotiate the tax, penalties, and interest.
Michigan Offer in Compromise Advantages
The Michigan Offer in Compromise will help many taxpayers in Michigan. The following are 5 advantages of the Michigan Offer in Comprise Program for taxpayers who are unable to pay back state taxes.
- It gives taxpayers a fresh start.
- It allows taxpayers to get back into compliance by filing all missing tax returns and starting to pay taxes again
- It frees Michigan taxpayers from the constant worries of getting wage/or bank levies.
- It provides the state more assurance that taxpayers participating in the Michigan Offer in Compromise program will correctly pay and file their taxes for the following 5 years. (If they do not, the Offer in Compromise is revoked.)
- Taxpayers are no longer limited to only setting up an installment agreement. The state may allow taxpayers to pay as little as $25 per month if the taxpayer can prove they are unable to pay. The problem with paying the bare minimum is the collection statue end date. The state generally has 6 years to collect on back taxes. Once the 6 years expired, the taxes are removed from collections. However, every time a payment is made the collection statue end date extends another 6 years, which means you may be paying the bare minimum for rest of your life because you are extending the collection period with every payment! If you are in this situation, the Michigan Offer in Compromise will greatly help you.
Offer in Compromise is Good for Michigan
The program also makes sense for Michigan.
- The state will be able to collect tax dollars they may otherwise never receive.
- It allows taxpayers to stop hiding and get back to paying state taxes
- The state will spend less time searching for delinquent taxpayers. Taxpayers will voluntarily come forward to participate in the program.
- It provides the state with more assurance that taxpayers who participate in the Michigan Offer in Compromise program will correctly pay and file their taxes going forward. (If they do not, the Offer in Compromise is revoked.)
For a detailed review of why the Michigan Offer in Compromise program makes good public policy sense, read the remarks of the Michigan Chamber of Commerce.